GE Power India LtdQ2 FY24Electrical Equipment

GE Power India Ltd

Q2 FY24 Earnings Call Analysis

Management growth scorecard

Revenue

Category 4

Margin

Category 1

Fundraise

N/A

Order

N/A

Capex

Yes

2 of 3 growth signals are positive.

Revenue guidance

Category 4

→GE Power India expects a sustainable market share of 7-8% within the ~₹18,000 crore market size, focusing on stable, quarter-on-quarter revenue growth.
→The company is shifting focus from new coal EPC projects to high-margin, cash-accretive services, upgrades, and equipment supply with faster cash conversion cycles.
→The retrofit and modernization (R&M) market for thermal power plants offers a 60 GW opportunity, which GE Power India is actively targeting.
→Growth areas include service upgrades, focus on FGD equipment supply, and expansion of capabilities in Durgapur for pressure vessels and cryogenic markets (non-coal).
→The Durgapur unit has increased service load from 10,000 to 170,000 hours, aiming to recover under-utilization losses and fill capacity through new backlog and exports.
→Net revenue after carve-out of hydro and gas businesses is expected around ₹1,000 crores, targeting double-digit EBITDA margins by FY 2026-27.
→The company anticipates profitable unrestricted free cash flow, improved credit ratings, and a debt-free status within two years, supporting future growth.

Category 1

→The company targets a sustainable market share of 7-8% within an 18,000 crore market, focusing on high-margin, cash-accretive deals.
→Post carve-out of hydro and gas businesses, the company expects a stable revenue base of around 1,000 crores, with a double-digit EBITDA margin anticipated from FY '26-'27.
→Legacy orders are currently pressuring profitability; however, new orders with improved margins are expected to turn operations profitable at EBITDA level within two years.
→Free cash flow is expected to improve significantly post-transaction due to reduced working capital cycle and de-risked EPC exposure.
→Interest costs (~66 crores currently) are expected to reduce gradually, with the company aiming to be debt-free within two years, supporting better earnings.
→Positive unrestricted free cash flow and better return on equity are expected due to net worth enhancement of about 296 crores from the transaction.

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→The company aims to be debt-free within two years following the slump sale transaction and expects a reduction in interest costs gradually.
→Borrowings as of March 31, 2024, were ₹102 crores and are expected to come down as the company receives consideration from the transaction.
→The transaction improves net worth by around ₹296 crores on day one and unlocks about ₹700 crores of non-funded bank guarantee limits, facilitating working capital availability.
→There is no explicit mention of plans for new fundraising through debt or equity in the current discussion.
→The focus is on improving working capital, reducing debt, and stabilizing cash flow through this transaction rather than raising fresh capital.

→As of March 31, 2024, the total order backlog is approximately INR 2,600 crores.
→Hydro segment backlog is around INR 1,600 crores.
→Gas segment has no backlog as it is a related party business.
→Remaining business retains about INR 1,000 crores of order backlog.
→The company expects to secure three more projects in the next five years as factored into the valuation.
→Focus is on steady state with double-digit EBITDA expected by FY 2026-27 after executing legacy orders.
→Current large hydro EPC projects have long gestation and delays, affecting working capital and cash flow.
→Emphasis is on high-margin, cash-accretive deals with faster cash conversion cycles.
→Strategic shift towards service and R&M business alongside existing backlog management for sustainable quarter-on-quarter revenue.

Yes

→Investments have been budgeted and approved in the business plan to build additional capabilities in Durgapur, focused on pressure vessels and cryogenic segments.
→The promoter has supported these investments with parent company guarantees, ensuring alignment and backing.
→The company is focusing on high-margin, cash-accretive deals, especially in services, upgrades, and the Durgapur facility’s industrial segment (pressure vessels, cryogenics).
→Strategy includes building competence to generate value from unique capabilities like pressure vessels and supporting FGD customers in India and 13 other countries.
→No investment in new coal EPC projects due to GE Vernova's strategic exit from new coal business and balance sheet constraints.
→Emphasis on stabilizing quarter-on-quarter performance with positive margin and free cash flow through strategic capex in selected business areas.

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